Site Search Navigation

Site Navigation

Site Mobile Navigation

Dow 10,000, Goldman $3 Billion: Welcome to the ‘Bush Recovery’

By Eric Etheridge October 15, 2009 5:40 pmOctober 15, 2009 5:40 pm

The Dow crossed 10,000 Wednesday (and held that level Thursday, closing at 10,062). Thursday morning, Goldman Sachs announced a quarterly profit of $3.19 billion. Neither number would have seemed believable a year ago, but now that these results are in, what do they say about the state of the economy? Also, who should get the credit, and what on-going academic feuds can Dow 10,000 be a datapoint for?

Let’s address the last two first. Michael Tomasky was watching Fox yesterday when he heard Neil Cavuto note Dow 10,000 and ask a guest whether this was the “Bush recovery.”

Cavuto, to be fair, asked whether that wasn’t “a bit of a stretch,” but his guest, a man named Jim LaCamp[sic], said (I’m sure purely coincidentally!) that it wasn’t really a stretch at all.

Jim Lacamp, a financial advisor, said, “It defies logic that you can blame Bush for the banking problems, the banking system, and criticize the bailouts, and not give him a little bit of credit right now… Between TARP and his appointment of Ben Bernancke, and he has dropped interest rates to zero which has really helped these banks heal, he has helped on the recovery side of the banks.”

This reminds me a bit of Dana Perino’s Fox News analysis in March, when the major Wall Street indexes started recovering. As she saw it, at least some credit for the turnaround should go to the administration that left office two months prior. “Can all the credit go specifically to President Obama? Well, I would say no,” Perino said. “We are just going to have to take a while to let all of this settle down and let the policies that our administration and the new administration are trying to put in place have a chance to work.”

At Commentary, John Podhoretz put the 10,000 mark to different use, in the fight over the value of the “efficient markets hypothesis” — which also enabled him to get in a swipe at Paul Krugman.

According to Paul Krugman and a great many liberal economists, the salient intellectual point of the financial meltdown is that it exposed the hollowness of the “efficient markets hypothesis.” This theory, devised by Robert Lucas of the University of Chicago, suggests that efforts to use the levers of government to move markets in certain ways and certain directions are bound to fail because the markets, in their collective wisdom, will always manage to “price in” future changes and thereby blunt their impact. Since the market failed to see the September 2008 crisis coming, and thereby failed to price it in, the meltdown was terrifying and reveals the flaws in the theory — and, by extension, its line of attack against government intervention.

Well, here we are on October 14, 2009, and the Dow Jones Industrial Average is once again above 10,000. This will surely be grounds for rejoicing among people who are supportive of the president’s claims to have stabilized the economy and put it on a favorable path. (To be fair to Krugman, though, he is unlikely to be among them — he’s very disappointed in Obama from the Left.) It will certainly be a good talking point. And yet what is on display in this seemingly nonsensical rise of 10 percent in the value of the Dow over the past few weeks? Nothing more than speculation that certain numbers look promising going forward. In other words, what we have here is a case of the “efficient markets hypothesis” working for the benefit of a Democratic politician, in that the collective wisdom of the market has it that the economy is going to grow at some point relatively soon and that the time to buy is now, so that stocks don’t get more expensive later.

So will those who claim that the post-Friedman Chicago School of Economics has been discredited still revel in the Dow’s potentially catastrophically premature climb, or will they find themselves explaining that the markets know best?

Robert Reich doesn’t think there’s much wisdom, collective or otherwise, behind the Dow: “This is all temporary fluff, folks. Anyone who hasn’t learned by now that there’s almost no relationship between the Dow and the real economy deserves to lose his or her shirt in the Wall Street casino.”

If Dow10K is underwhelming, what about Goldman’s $3.19 billions? Sorry, no fun there either. Kevin Drum says Goldman’s rising profits speak more to the casino economy, not so much the real one.

Here’s how Goldman Sachs’ soaring third-quarter revenue breaks down:

“Goldman’s business from fixed income, currency and commodities trading again bolstered its bottom line, with revenue more than tripling. Revenue from its principal investments soared 55% from second quarter after losing money a year earlier.

In other words, even more than usual, Goldman is a hedge fund with a smallish investment bank tacked onto the side. They made better bets than the other guys, but the kind of business that would indicate a recovering economy is still very much in the tank.

At Clusterstock, John Carney took a couple of pokes at Goldman’s earnings. First he pointed out that though FICC, the unit that accounted for the firm’s growing profits — fixed income, currency and commodities, “supposed to be the smartest shop on the street” — produced 55 percent growth in the quarter, most the of the indexes did better.

The the small-cap Russell 2000 index is up an eye-popping 75% since March. The S&P 500 has climbed 58%. The Nasdaq composite index has advanced 66%.

In short, Goldman would have done better if it just abandoned FICC in favor of buying an index fund.

On second consideration, Carney said the real problem with Goldman’s earnings, as well as those JP Morgan Chase, is that they were just plain underwhelming. “Yesterday JP Morgan announced earnings that blew away the official analyst estimates. Today Goldman Sachs did the same thing. But the reaction to both earnings announcements is similar: is that it?”

It was hoped that JP Morgan would reveal that its loan loss provisions had declined. Instead they kept climbing. And we wanted Goldman to totally blow away the ‘estimates.’ Instead it plugged in a solid “beat.” A lot of Goldman’s gains were made on bets that ordinary mortals might have made, such as trading in further declines in subprime.

What was missing in both reports was the idea of market genius or financial expertise. Where was the “fire?”

Everyone knows you can make money if your borrowing costs are held artificially low by government backstops. So just being profitable isn’t enough these days. We need heroic profitability. And neither Goldman nor JP Morgan delivered on the prospect of heroism.

Michael Roston finds another figure to add to the mix: 169,000. That’s the number of recruits who signed up with one of the armed services in the year ending Sept. 30. The Pentagon said it exceeded it’s goal for the year by 5,000, and that the total was “highest figure since 1973, the first year of the modern all-volunteer force.”

Roston thinks he understands why: “Americans are going so broke in this jobless recovery that instead of finding work in our not-so-happy-fun-time economy, they’d rather get shot up and shoot at other people in Iraq, Afghanistan, and other places.”

Americans are going so broke in this jobless recovery that instead of finding work in our not-so-happy-fun-time economy, they’d rather get shot up and shoot at other people in Iraq, Afghanistan, and other places. . . .

I salute the service of our men and women in uniform, and respect the bravery of all who would choose to join at a time when it looks like we are headed for years of peril in Afghanistan, the graveyard of empires. But I’d rather salute Americans by finding them jobs that don’t involve armored vehicles and improvised explosive devices.

If there is anything that shows the divide between Wall Street and Main Street, it’s the contrast between a day when the stock market gleefully returns to five-digit territory, and the military beats its recruitment goals.

Blogger redbedhead at Lenin’s Tomb says “It shouldn’t come as a surprise that the biggest of the big banks in America that sucked up tens of billions in government aid are now rolling in profits. That’s how this game works.”

Thus, JPMorgan has just reported a 580% profit increase over last year to a whopping $3.6 billion third-quarter profit. The reason is, purely and simply, that the money that the US government pumped into the banking and financial sector has created a new Wall St. bubble with stock prices rising by nearly 50% to top the psychological benchmark of 10,000.

The actual meaning of that number is a mystery to most of us not initiated into the occult world of the stock market. But the basic gist is that there’s a lot of cash floating around and people are doing to the stock market what they did to the housing market bidding it up, out of relation to the value of the assets that they represent. The trouble is, in the real world, the [house] is still burning. Community banks in the US, which make their profit by loaning money to people to buy houses, finance small businesses, other consumer loans, etc. are tanking badly. These 7,000 banks have collectively lost about $2.7 billion. And many are outright failing: “Ninety-eight banks, mostly small, have failed so far this year, and regulators predict the harvest from the current recession is less than halfway complete.”

The reasons why are straightforward, with loan delinquencies sitting at a record 4.35 percent and climbing and real estate development loans have rocketed to 16 percent. Amongst homeowners, 7.35 percent were delinquent – another record. In previously frothy markets like south Florida the freefall is continuing. According to one real estate agent foreclosures have risen by 25 percent compared to last year and the trend is higher. It is certainly possible that the present round of profit reporting ­ including a positive report from Intel Corp. boosting share earnings and projecting an extra $1 billion in revenue for the fourth quarter could in fact herald a recovery. But it’s also the case that, like previous recessions going back to the Reagan arms boom this one will have been ended by laying the basis for the next one.

At the Huffington Post, Les Leopold said “It’s time to recognize what it means to be part of the billionaire-bailout nation. Citizenship comes in three distinct flavors.”

If you are wealthy, it’s fantastic to take part in the resurgent Wall Street boom. You are thrilled to see the trillions in taxpayer dollars successfully prop up the financial sector. After all it’s not really your money — your tax shelters take care of that. You love the rise in the markets. You are now reaping the rewards of investing in a sector that rests firmly upon government welfare, and in which the largest institutions are guaranteed from failure. It feels good to see double-digit returns again, which you feel you truly deserve. The gap between your wealth and the average American’s is utterly fantastic. Life is good.

If you have a job, you are feeling better than a year ago. Your 401k is coming back from the dead. The stimulus program seems to be helping with your employment. You may even get some relief from health care reform. But you are not seeing your wages increase. (Overall the average production workers real wages are down more than 18 percent since the mid-1970s.) It’s not easy to maintain a middle-class existence or get anywhere near one if you’re not already there. Layoffs might be slowing down but you are still petrified that your job will soon disappear. You are unsure you can provide for your children’s education and your own retirement. The future seems much less secure than it did for your parents’ and grandparents’ generations.

If you don’t have a job you’re in deep trouble. You are a “lagging indicator.” You are one of the 29 million who are without work or forced into part-time jobs (the BLS U6 Jobless rate stands at 17 percent). You are gobbling up what savings you have or already digging a deep hole of debt. You are hoping other family members can keep the ship afloat until you find employment. You’ve worked hard all your life only to watch your industry pack up and leave or shut down all together. You’ve drawn the short straw.

I don’t mind allocating a small measure of credit to Bush for the recovery. Just so long as any such allocation comes in tandem with a reminder that he and his free-market ideologue cronies were responsible for its near-death in the first place.

You don’t get a free pass for a near-fatal car accident just because you call 911 to help your victims.

If this isn’t class warfare I don’t know what is – this rally and all that Goldman stands for will be what makes Obama a one termer…He has yet to denounce the bonuses that Goldman is frothing to give out while millions suffer…!

I have nothing but hatred and contempt for our financial industry. These gangsters are crack addicts that need more risk (with our backing of losses) or they cannot get high. Why do we reward these crooks?

I dont care about lower returns, I want to take all of my money out of the hands of these criminals but do not know how. Our leaders are useless bed-buddies with bankers and wall street and I hate them too – I hope they all die from a painful anal disease.

It can be the “Bush Recovery” if “Bush” is used to qualify EVERY aspect of the crisis:
-Bush Recession
-Bush banking scandal
-Bush regulatory failure
-Bush currency collapse
-Bush mortgage meltdown
-etc

Right. Just as Reagan engineered the release of the Tehran hostages. I don’t know what they’re smoking over there on the right wing, but if they passed some to the left wing maybe we’d straighten out and fly a straight course.

Don’t call it a recovery period until unemployment drops down to 6.5% and small business can get loans again. No one cares about the Dow or Goldman anymore except Wall Street and they sure don’t give a damn about us.

Where were the federal regulator watchdogs (SEC (Cox), Treasury Department (Paulson), and Federal Reserve Board) from about 2004-2008 when all of these toxic financial instruments were being created, sold and acquired (especially by our banks and other financial institutions)? Someone should have been screaming “danger! danger! danger! They are the experts. That is their job.

It is Obama and the Democrat’s stakeholders at Goldman Sachs and JP Morgan, et. al, that caused this crash; it is Obama taking taxpayer money to make them all whole, and then richer than ever, Give Obama and the Democrats the credit, they earned it.

What no one talks about is how we got here. Bush was overseer of a massive redistribution of wealth to the upper !% and they were supposed to invest it and grow the economy. Trickle down, nothing more. Well instead of investing in real “things” they invested in schemes where money made money. Think of where we would be now if we would have had a president who believed in science and facts and tried to develope a green economy and didn’t start a war. Obama deserves all the credit in the world for sholdering an incredible burden and “showing up for work” day after day in spite of all the nonsense hurled at him by FOX.

bush recovery my arse. the man turned a record surplus into record deficits! this is exactly how the rovian right endeavors to enable their 20% of the country to find a way to believe what is utterly utterly incredible, viz. by lying about how they themselves believe it (which of course they do not), and about how absurd they find it that anyone should believe the contrary. it’s an absolute farce—though, as we see here, it does still work for the zombies that make up that remaining 20%.

Considering that neither the profits of Goldman Sachs nor the Dow Jones Industrial Average are indications of anything other than the crap-shoot mentality of today’s Wall Street bankers and speculative investors, I think it is too soon to give credit to anyone for this “Recovery”. Even a dead cat will bounce up before it finally settles to the ground.

Bush, wanting to stop the economic slide, probably asked advice of the nation’s leading economists, and when Obama came into office, he, wanting the same thing, probably spoke to many of the same people. They probably followed a similar course to stem the crises. Not everything has to be political.

Well, I guess all the money that the government got from the taxpayers and gave to them really helped their bottom line. Looks like they’re trying to convert it into bonuses to stuff into their pockets quickly before things tank again.

Bush deserves no credit for anything other than ruining our country. GOld and Sacs is the most corrupt bank around and should be fore to give all that money to get a public option in a universa healthcare bill!

The only thing the Bush administration had to do with whatever recovery we might be in was to create the disaster being recovered from.

Running the Iraq and Afghan wars on the national VISA card guarantees more trouble down the line, no matter what we fix now. Then there’s the matter of the trillion dollar surplus left by the Clinton administration. Bush promptly signed over the national savings to his social peers. That top one percent really did do quite well as far as getting their claws on our tax surplus. All the talk lately about healthcare reform makes a person think just how much care that trillion would have bought for the American people in the bottom 99 percent.

As jobs disappear and American families fail, it should come as no surprise. The Bush administration left us with a system that gives 94 percent of the pie to the top 5 percent. That leaves 6 percent of the pie for ALL the rest of us. The republicans can blabber on and on about how much they love America. Apparantly that love extends to the top 5 percent. Actions speak louder than words.

Why are we even talking about Fox? Oh, right; it’s the opinionator. Which is all Fox ever is. Credit where due: Bush gets it for destroying the economy; Obama gets it for recovery. It’s nearly ten months later, after all.

What's Next

The Thread is an in-depth look at how the major news events and controversies of the day are being viewed and debated across the online spectrum. Compiled by Peter Catapano, an editor in The Times’s Opinion section, the Thread is published every Saturday in response to breaking news.